By what criteria are you judging that they are over-compensated? The judgment seems entirely arbitrary and emotionally motivated.
Assuming a free market, if they're earning huge amounts, it means they're unlocking subtantial new efficiency gains, which has significant positive externalities. The large profits in turn are inviting additional time and capital to be deployed into the investment activity that hedge funds engage in, to further exploit this profit opportunity, and thereby, raise the efficiency of the economy.
One argument I could buy is that they are capturing more value than they should because regulations are limiting the competition they face.
>>The law has also inflated the compensation of hedge fund workers—roughly $500,000 on average—by restricting competition. Mutual funds—which charge tiny fees by comparison—are currently barred from using hedge fund strategies because they have non-rich investors. If the law was changed to allow mutual funds to offer hedge fund portfolios, hundreds of billions of dollars would be transferred annually from super-rich hedge fund managers and investment bankers to ordinary investors, and even low-income workers with retirement plans. A House committee recently approved a bill that would slightly ease the accredited investor rule. Even if it became law, the bill would be a modest step—but at least one in the right direction.
I think we see things very similarly, and I also hate the language of "over compensated" as it implies there is some arbitrary fair level of compensation.
On the other hand, financial institutions in America have received a lot of compensation that was not "fair", it was just handed to them by governments. If they had been competing fairly most of the major banks in the US wouldn't exist anymore.
We really have not had free capital markets since 2008. We have centrally planned rates, centrally planned liquidity, centralized buyers in debt markets. It's really a mess and very few of the outcomes of this system are fair by any metric.
They do lose. The hedge fund business is risky, and hedge fund managers and funds that lose money.
>And not only that: I would even wonder: new efficiencies have been unlocked?
Yes, if they are making good investments, that generally maps to them allocating investment capital - which is a claim on the finite labor and natural resources at the economy's disposal - to where it generates the biggest return to the economy.
That's why people strive to become wealthy: they can create a cash reserve that ensures that the consequences of career failure is not total destitution.
You seem to be critical of this positive aspect of accumulating wealth, which I would argue is counter-productive, and motivated by anti-wealth bias.
Assuming a free market, if they're earning huge amounts, it means they're unlocking subtantial new efficiency gains, which has significant positive externalities. The large profits in turn are inviting additional time and capital to be deployed into the investment activity that hedge funds engage in, to further exploit this profit opportunity, and thereby, raise the efficiency of the economy.
One argument I could buy is that they are capturing more value than they should because regulations are limiting the competition they face.
https://www.brookings.edu/research/make-elites-compete-why-t...
>>The law has also inflated the compensation of hedge fund workers—roughly $500,000 on average—by restricting competition. Mutual funds—which charge tiny fees by comparison—are currently barred from using hedge fund strategies because they have non-rich investors. If the law was changed to allow mutual funds to offer hedge fund portfolios, hundreds of billions of dollars would be transferred annually from super-rich hedge fund managers and investment bankers to ordinary investors, and even low-income workers with retirement plans. A House committee recently approved a bill that would slightly ease the accredited investor rule. Even if it became law, the bill would be a modest step—but at least one in the right direction.